RFID: the saviour of business?

Radio frequency identification technology proved to be the hot topic Tuesday at Forrester Research's Executive Strategy Forum in Boston, with attendees speculating that the technology could help revitalise the sagging enterprise software industry.

The theme of this year's conference is 'the extended Internet'. According to Forrester, the concept refers to the adoption of technologies that link products and property to digital devices such as handheld computers, vehicle-based communications systems and radio frequency identification technology (RFID) chips.

RFID chips carry descriptive information, most frequently regarding products to which they're attached. This data can be read by a number of different devices - including handheld computers or sensors located in a warehouse - and promise to help businesses streamline processes such as inventory management. For instance, some companies plan to use the chips to identify the contents of shipping containers without ever being forced to stop and open them.

Some experts believe that by using RFID technology in products and corporate assets, such as heavy machinery or trucks, companies may finally see more of the benefits long promised by enterprise software systems, including enterprise resource planning (ERP) and supply chain management applications. Forrester analyst Navi Radjou said that RFID could provide the real-time information that has proved elusive in enterprise systems that have attempted to streamline processes such as manufacturing and distribution.

"If you look at supply chain software, the goal has always been to more effectively track orders or plan inventory, but those systems by nature dealt with historical data," Radjou said. "With RFID you're talking about the ability to identify exactly where something may be, not where it was; this could help close the information gap that exists between enterprise technology and the physical supply chain." By improving the accuracy of enterprise software systems, companies could see massive savings in materials sourcing, inventory management and even staffing, Radjou said.

Several well-known manufacturers detailed plans for RFID-based applications at the conference, including consumer products giant Procter & Gamble and tyre maker Michelin. Kerry Clark, vice chairman and president of P&G's global market development and business operations, highlighted the company's plans to have RFID technology built into 80 per cent of its North American product shipments by 2005.

The company's plans involve the use of electronic product code (EPC), a futuristic bar-code system that uses a microchip to replace the series of black vertical lines found on most merchandise today.

"EPC will allow us to put a license plate on every [product]," said Clark. "There is a ton of money in the supply chain that is not being managed well and we must go after that."

P&G is already piloting product tracking programs with customers such as retail giant Wal-Mart Stores, which has demanded that its suppliers have some level of RFID technology in place by 2005 so the company can better manage its own massive inventories.

Michelin's plans deal with tracking products for reasons beyond cost cutting. According to James Micali, chairman and president of Michelin North America, the company is experimenting with RFID technologies that allow it to hunt down products in the case of defects or a recall, such as the one issued several years ago by rival tyre maker Firestone. Michelin is also loading sensor systems into its commercial trucking tyres in order to help fleets track details such as mileage, tread wear and even air pressure. In theory, a company using the tyres could radio truckers and warn them before a blowout.

"One of the biggest challenges for us is finding a [RFID] tag that will endure the tyre-manufacturing process," said Micali, referring to the vulcanisation process used to make modern tyres.

Micali also estimated that RFID technology could help Michelin eliminate hundreds of millions of dollars in unused inventory, allowing the company to better prepare for supply and demand issues related to seasonal products such as snow tyres.

Forrester's Radjou pointed to a number of challenges for RFID, including a time frame of at least several years before the chips and related equipment are widely distributed. However, the biggest obstacle to RFID is based thoroughly in human nature, he said. Once the technology is in workers' hands, he said, they may not use it effectively, as it may force lower-level workers to make critical decisions they don't want to be responsible for, such as whether to order additional inventory immediately.

"Some companies are not used to letting the workers, as opposed to management, make autonomous decisions," said Radjou. "RFID holds a great deal of promise, and could help redeem traditional enterprise software but the same people and process issues that have affected those systems could also provide a barrier to RFID."

Matt Hines writes for CNET News.com